DICJ Round Table in Kyoto

Transcription

1 DICJ Round Table in Kyoto March 7, 2012

2 I. Features of the Heisei Financial Crisis II. Response to Crisis III. Financial Resolution in Normal Time Ⅳ. DIC for Japan V. Issues for Discussion 2

3 21 Years History to Overcome the Heisei Financial Crisis (DICJ) The Basic Discount Rate and Loan Rate (%, left axis) 10 yr JGB (%, left axis) Nikkei Avg. (, right axis) 35,000 30,000 25, , , , , Major Events or Disasters Burst of the bubble economy (Sharp decline of real estate and equity prices, which bottomed out sometime in 1998.) The Great Kobe Earthquake Failure of Sogo department store, a major big retailer Subprime mortgage problems Northern Rock nationalization G.East Japan Earthquake, Fukushima 1 NPP Accident 0 Bank Failures, etc First full-scale application of deposit insurance system/ Establishment of Tokyo-Kyodo Bank, publicly managed for the purpose of assuming failed financial institution 1997 Apr.1: BOJ capital injection to NCB Nov.17: Failure of Hokkaido Takushoku Bank Nov.24: Closure of Yamaichi Secutiries 1998 Implementation of temporary crisis management measures 1) Capital Injection 2) Temporary Nationalization -applied for two large banks (Long- Term Credit Bank of Japan/ Nippon Credit Bank) 2001 Implementation of permanent crisis management measures 1) Capital Injection 2) F ll C f d it 2003 Capital.Injection to Risona Bank Temp.Nationalization of Ashikaga Bank Lehman shock World wide financial crisis Greek debt crisis 2) Full Coverage of deposits Failure of Nihon Shinko Bank(The first case of limited coverage) The Collection And Resolution Company (Subsidiary of DICJ) Predecessor of the RCC Resolution and Collection Corporation Industrial Revitalization Corporation Enterprise Turnaround Initiative Corporation Deposit Insurance System Temporary Blanket Guarantee Re-installation of Limited Guarantee Established in 1971 Number of Failed Financial Institutions Total

4 I. Features of the Heisei Financial Crisis Heisei Financial Crisis from late 1990s to early 2000s 1. Home-made, indigenous problem => Caused by the burst of bubbles 2. Overall problem for Japan => Financial institutions in all sizes => Not only banks but also securities companies and insurance companies => All over Japan 3. Government involvement and fundamental changes to resolution framework 4

5 I. Features of the Heisei Financial Crisis Our framework is equipped with full-fledged sets of resolution tools to deal with troubled banks in both conventional and crisis cases. Bank Failure Undercapitalized Banks Limited Coverage Conventional case Systemically Not Important blanket guarantee Crisis Management case Systemically Important Financial Crisis Management Council chaired by the Prime Ministeri Payout Purchase & Assumption (P&A) w/ fin assist up to payout cost Purchase & Assumption (P&A) w/ fin assist beyond payout cost Nationalization Capital Injection 5

6 1. Blanket guarantee of all debts including deposits 2. Capital injection 3. Temporary nationalization of failed financial institutions 4. Purchase of bad assets and stocks 5. Revitalization ato of failed edbusiness esscopoato corporations 6

7 II. Response to Crisis Before 1996 Blanket guarantee voluntarily financed by relevant banks assuming bank => additional payment for goodwill value,etc. other relevant banks => financial support 7

8 II. Response to Crisis Too many failures to maintain the voluntary scheme 1996 Special account with special premiums at DICJ to finance blanket guarantee Limited coverage restored to be the principal method ~Blanket guarantee only for the case of systemic crisis =>DICJ Crisis management account with ex-post financing 8

9 II. Response to Crisis 1998 Introduced as temporary measure 2000 Became permanent In principle, preferred stocks are obtained in order to secure repayment Recipient financial institution submits a management improvement plan 9

10 II. Response to Crisis When usual resolution even under blanket guarantee still leaves the possibility of systemic risk Only for cases where a financial institution has negative net worth; i.e., liabilities exceeding assets. 3 cases so far. 10

11 II. Response to Crisis Bad assets and stocks were purchased from financial institutions on a large scale => to stop the vicious cycle disposal of bad assets leading to further deterioration of assets market. => to improve the balance sheet of financial institutions to boost the effects of capital injection executed in parallel. 11

12 II. Response to Crisis Unless industry is recovered, there will be no final solution to bad loan problem. In I the U.S., government s assistance to the automotive industry. In Japan, in place of direct government involvement, DICJ s subsidiaries take over business corporation until their revival. 12

13 II. Response to Crisis Developments during the Heisei Financial Crisis 13

14 1. Smooth resolution (1) Financial administrator : DICJ (2) Bridge bank : 100% subsidiary of DICJ 2. Support for depositors with uninsured deposits (1) Purchase of deposits etc. (2) DICJ Representation of depositors in bankruptcy proceedings (3) Financial i assistance for equitable treatmentt t 3. Pursuit of management responsibilities 4. Resolution and Collection Corporation 5. Blanket guarantee of settlement obligations and deposits for payment and settlement purposes 14

15 Ⅲ. Financial Resolution in Normal Time (1) Financial administrator : DICJ (2) Bridge Bank : 100% subsidiary of DICJ => Final acquirer of the failed financial i institutions is to be selected by public bidding. 15

16 Ⅲ. Financial Resolution in Normal Time (1) Purchase of deposits etc. (2) DICJ Representation of depositors in bankruptcy proceedings (3) Financial assistance for equitable treatment 16

17 Ⅲ. Financial Resolution in Normal Time DICJ is required by law to investigate responsibilities of management of failed financial institutions and unscrupulous debtors => investigative authority with fines for noncompliance 17

18 Ⅲ. Financial Resolution in Normal Time RCC = 100% subsidiary of DICJ => Performs the following functions under agreement with DICJ > Collection of bad loans of failed financial institutions > Pursuit of responsibilities of management as well as unscrupulous debtors of failed financial institutions >BridgeBank Bank 18

19 Ⅲ. Financial Resolution in Normal Time RCC : Debt Collection Performance 19

20 Ⅲ. Financial Resolution in Normal Time Limited coverage =>Separation of insured and uninsured amounts over the weekend Practically impossible for settlement obligations to be separated in such a short period of time =>Blanket guarantee of settlement obligations and deposits for payment and settlement purpose Concerns for Moral hazard are minimal because: (1)They should bear no interest to qualify as settlement purposes (2)Difficult to control the outstanding amounts which depend on settlement needs N.B. Moral hazard may arise if convenience is deemed more important than soundness in choosing banks 20

21 Basic ideas behind the Japanese deposit insurance system can be summarized as: Differentiation => Different frameworks for crisis and normal time Integrity ty => Ensure confidence in financial system and prevention of moral hazard by pursuing responsibilities of bank executives and unscrupulous debtors Capability => hybrid nature of DICJ => DICJ mandates for bank resolution in crisis and normal time => Additional mandates of DICJ 21

22 1. Government involvement in bank resolution 2. Role of deposit insurers in financial stability 22